Sarasota, FL, October 20, 2014 / By: David Montague, The Fraud Practice LLC
Manual reviews can be an important component of a risk management strategy, but typically aren’t a technique merchants should rely on too heavily. From The Fraud Practice’s perspective, manual reviews are more about trying to convert orders that weren’t accepted through automated screening rather than trying to catch orders that may be fraudulent. In other words, a merchant should be looking for diamonds in the rough after most of the dirt has already been sifted away, instead of inspecting a whole crate of oranges to throw out the bad ones before they’re all juiced.
Often manual reviews are one of the more costly aspects of an organization’s risk management operations. According to a CyberSource merchant survey, on average 52 percent of an organization’s fraud management budget is spent on manual review staff costs in North America. Implicit in the name, manual reviews are labor intensive, requiring a staff that grows proportionally with the transaction attempt and review populations.
Merchants and risk management directors acknowledge the costs associated with performing manual reviews in-house but often limit themselves in terms of considering alternatives. That is, many professionals in the industry today view performing manual reviews as a binary decision: either we do it all in-house or we outsource all reviews to a third party service provider. These are not the only options available and manual reviews do not need to be viewed as an all-or-nothing decision when it comes to considering vendor managed manual reviews. For many merchants using a method of “selective” review on an outsourced basis could yield better results.
Outsourcing some or all of their manual reviews could produce a positive ROI for many merchants. Here are two examples of when merchants should consider seeking assistance from third party vendors to handle some of their reviews:
1) The merchant is finding that there are a number of transactions that they cannot successfully get to a final go/no-go decision. For these merchants they want to give orders to a third party when they are not comfortable accepting the risk and want to have another chance to convert them.
A manual review is only as good as the person performing it and the tools and techniques that are available to them. Merchants may have authentication and other tools and services for performing manual reviews, but the amount of tools and services in use varies greatly from merchant to merchant. Even with a strong set of tools, they are only as good as the agent’s experience and training allows them to be.
In either case, and even when a seasoned fraud agent has quality tools at their disposal, merchants often find themselves with orders they still aren’t sure about. When agents are faced with mixed signals, some signals of increased risk, and some pieces of evidence that suggest the order might be legitimate, most will defer to decline, often resulting in a lost sale and customer insult.
Conceptually, a merchant could use outsourced services to review only those orders where they intend to say no, to try to find any good orders that might be in that population. Of course the major assumption you need to confirm first, is that your third party provider has better tools than you or that they will guarantee their decision to make it worthwhile.
2) The merchant can no longer keep pace with the amount of reviews that need to be performed.
It’s difficult to keep up with the need to review more transactions as the queues grow larger. This leads to hasty hiring and training of new staff, and/or longer review times with declining performance. Merchants have already invested a great deal in hiring and training in-house staff, bringing in different review tools, a review platform and queue management system, or even building some of this in-house. Often organizations find themselves wanting to continue to manage risk and manual reviews in-house but struggle to maintain the same level of effectiveness as volume grows, new products are released or when fraud attack patterns change.
Most organizations understand that they are not in the business of preventing fraud, but see it as a necessary means to continue to focus on their core business profitably. Organizations try to reduce costs by performing as much as they can directly in-house, but once review queues become too large to manage merchants are often better off seeking outside help.
Often a merchant designs their risk management strategy so that the best and worst transactions will be auto-decisioned and sets a target review rate relative to volume. When volume increases, be it from seasonal peaks or just a growing business, the merchant is faced with a decision. Do I increase staff so we can continue to review X percent of transactions, which is now a larger amount of orders due to transaction volume growth? Or do I adjust my strategy to send a smaller portion of orders to review, trying to maintain roughly the same number of reviewed orders?
Manual reviews are a healthy part of every merchant’s verification process. Too often, merchants lose out on what would otherwise be good sales. Many merchants aren’t equipped to perform proper manual reviews in a timely fashion or they aren’t able to reach the level of confidence needed to approve an order. This may be due to a lack of sufficient tools, staff or expertise. Whether a merchant needs a lot of help, or just a small amount of assistance during peak times, outsourcing manual reviews can make good business sense for many merchants. Michael Dembinsky, CEO, eFraud Security
Many merchants struggle to fully handle risk management and manual reviews in-house, especially with changes in volume and fraud patterns. But chances are the merchant is already doing some things today to handle risk with both automated and manual processes, and they often want to maintain their in-house teams for risk and reviews rather than outsource it entirely. While many organizations are aware they could fully outsource their manual reviews to a third party, many do not wish to do so. But fewer merchants are aware that when it comes to outsourcing manual review, it doesn’t have to be an all-or-nothing decision. There are vendors that facilitate the review of only the orders a merchant decides to send them charging on a per-order or per-review basis. This allows merchants to continue to reduce costs by managing as much or as little of their transactions and reviews in-house as they choose.
When the manual review volume and queues become unmanageable many merchants only consider two options: increasing staff and/or review tools, or sending all transactions that are not automatically accepted or declined to a third party manual review service. But when it comes to seeking help from a vendor with your organization’s manual reviews, remember that it doesn’t have to be an all-or-nothing decision, and the decision that makes the most financial sense for a merchant may be something in between.